TSEM: Expect a Stronger Second Half at TowerJazz

Zacks Small Cap Research

By Ken Nagy, CFA

On August 8, 2013, Tower Semiconductor Ltd. (TSEM), the Israel based global specialty foundry leader, reported financial results for its second quarter, ended June 30, 2013.

The company reported second quarter revenues of $125.236 million, which was a $12.589 million or 11 percent sequential improvement.  However, year over year revenues fell by 26 percent as a result of the planned contractual decrease in the Micron volume agreement in Nishiwaki.

Second quarter revenue results were within the midrange of Tower’s guidance and were primarily due to an increase in core business wafer revenue, which management believes will increase further in the third quarter.

Similarly, Tower realized significant achievements in most every sector of its business, entering into several new areas with leading customer partnerships, where Tower is the sole pure-play foundry.

Furthermore, operationally, the company continuously improved efficiencies which enabled it to report higher non-GAAP gross and operating margins. GAAP gross margin improved sequentially to 9.8 percent from 2.3 percent for the three months ended March 31, 2013.

Operating loss for the three months ended June 30, 2013 was $7.982 million improving by over 50 percent quarter over quarter from an operating loss of $18.831 million in the first quarter of 2013. EBITDA during the second quarter of fiscal 2013 improved sequentially by $12 million to $27 million during the three months ended June 30, 2013.

Tower reported a second quarter 2013 GAAP net loss of $22.887 million or $0.59 per share, which improved on a month over month basis from a net loss of $23.151 million or $0.94 per share during the first quarter 2013.

Non-GAAP second quarter 2013 gross profit was $44.032 million representing gross margin of 35.2 percent while non-GAAP net profit was $18.201 million.  This compares sequentially to non-GAAP gross profit of $33.700 million and gross margin of 29.9 percent. Non-GAAP net profit was $6.473 million for the first quarter ended March 31, 2013.

Tower Semiconductor’s balance sheet remained strong with $116.559 million in cash and short-term deposits and working capital of $157.197 million for the period ended June 30, 2013.

This compares to $119.707 million in cash and short-term deposits and working capital of $141.438 million for the period ended March 31, 2013.

Likewise, net current assets improved to $157 million from $129 million at the end of 2012 and $141 million at end of the first quarter 2013.

Tower’s current ratio continued its positive trend also, improving to 2.1x as of June 30, 2013, from 1.76x as of the end of 2012 and from 1.98x at of the end of the first quarter 2013.

The second quarter as well as the first half of 2013 saw more than a 15 percent increase in design wins over the same period of 2012. Tower had a record 7500 masks entering into its factories during the first half of 2013, which was a 30 percent year over year increase.

It’s important to note that design wins and number of masks entering the factory are the most important indicators for continuous revenue growth during the years to come.

Management is seeing strong growth from leading European customers and numerous customers, gained over the past few years with a variety of products, have moved into high volume production.

Furthermore, each and every of the company’s business units is realizing notable market share growth with analogous revenue promise over the next years as these tape outs ramp to volume production.

As a result of these achievements, management anticipates fiscal 2013 third quarter revenues to be in the range of $130 to $140 million, representing sequential mid-range growth of nearly 8 percent. 

Likewise, in consideration of the recent design wins and masks management is optimistic of continued growth into the fourth quarter 2013 and throughout 2014.

A copy of the full research report can be downloaded here >>    Tower Report

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